Please ensure Javascript is enabled for purposes of website accessibility

Why Arista Networks Stock Sank 14% in August

By Keith Noonan – Sep 6, 2020 at 4:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Solid Q2 results weren't enough to lift the stock last month.

What happened

Shares of Arista Networks (ANET 4.30%) fell 14% in August, according to data from S&P Global Market Intelligence. Despite momentum for the broader market and a second quarter earnings beat, the network technology company's stock sold off due to a weakened industry outlook.

^SPX Chart

^SPX data by YCharts

Image source: YCharts.

Arista published second quarter results on Aug. 4, and the stock saw a pronounced dip after the release despite the business posting better-than-expected sales and earnings in the period. The network technology company recorded sales of $540.6 million and non-GAAP (adjusted) earnings per share of $2.11, topping the average analyst estimate's call for sales of $529.7 million and per-share earnings of $1.95.

An ethernet cord.

Image source: Getty Images.

So what

Arista's sales climbed 3.4% year over year in the quarter, but adjusted earnings per share fell 13.5% in the period, and management warned of a near-term slowdown for the business despite strong execution. The company's guidance, combined with targets from competitors including Cisco, suggests that the network technology space will be pressured as enterprises pull back on growth spending amid economic uncertainty.

Now what

Arista Networks stock has continued to slide in September's trading. Shares are down roughly 5.5% in the month so far.

^SPX Chart

^SPX data by YCharts

Image source: YCharts.

Arista is guiding for third quarter sales to come in between $570 million and $590 million, representing a roughly 11% year-over-year decline at the midpoint of the target. Management expects an adjusted gross margin between 63% and 65% and an adjusted operating margin of approximately 37% for the current quarter.

Arista Networks has a market capitalization of roughly $16 billion and trades at approximately 24 times this year's expected earnings.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Arista Networks. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Arista Networks, Inc. Stock Quote
Arista Networks, Inc.
ANET
$120.81 (4.30%) $4.98
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$41.82 (2.22%) $0.91

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
331%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.